Cyrus Mistry has dropped a bombshell that could send Tata Group shareholders scurrying for cover when stock markets open on Thursday. Coming out all guns blazing on the 148-year-old Tata Group, the ousted chairman of Tata Sons said that select companies are staring at cumulative impairments of about Rs 1,18,000 crore.
These companies are Tata Motors, Tata Steel Europe, Indian Hotels Company Limited (IHCL), Tata Power Mundra and Tata Teleservices.
"...the capital employed in these companies has risen from Rs 1,32,000 crore to Rs 1,96,000 crore (due to operational losses, interest and capex). This figure is close to the networth of the group, which is at Rs 1,74,000 crore. A realistic assessment of the fair value these businesses could potentially result in a write down overtime of about Rs 1,18,000 crore," Mistry said in his lengthy letter addressed to directors of Tata Sons.
Tata Motors closed 4.27 percent lower at Rs 529.50; Tata Steel down 4.01 percent at Rs 398.85; Tata Power ended 2.06 percent at Rs 80.65 and IHCL at Rs 121.40, down 3.38 percent.
Slamming the holding company of the $103 billion Tata Group, Mistry said the board of directors "has not covered itself in glory" for the manner in which he was removed from his post without giving him an opportunity to defend himself or explain his position.
Potentially costly exit from telecom biz
On the Group's telecom business, Mistry said, "Of all the companies in the portfolio, the telecom business has been haemorrhaging. If we were to exit this business via fire sale or shutdown, the cost would be USD 4-5 billion. This is in addition to any payout to Docomo of at least a billion plus dollars."
Tata Power's Mundra project
He also highlighted the potential losses out of Tata Power's Mundra project.
"Tata Power aggressively bid for the Mundra project based on low-priced Indonesian coal. As regulations changed, the losses in 2013-14 alone amounted to Rs 1,500 crore. Given that Mundra constitutes Rs 18,000 crore of capital employed, this substantially depresses the return on capital for Tata Power as well as carries the risk of considerable future impairment."
Oblique reference to old guard
"...I had to take many tough decisions with sensitive care to the group's reputation as well as containing panic amidst internal and external stakeholders. Apart from hotels, the group made several exits...I had to ease out hangers-on who are prone to flaunt their proximity to power," Mistry said.
Fraud at AirAsia
"Board members are also aware that in the case of AirAsia, ethical concerns have been raised with respect to certain transactions as well as the overall prevailing culture within the organisation. A recent forensic investigation revealed fraudulent transactions of Rs 22 crore involving non-existent parties in India and Singapore. Executive trustee Mr Venkatraman, who is on the board of AirAsia and also a shareholder in the company, considered these transactions as non-material and did not encourage further study. It was only at the insistence of independent directors, one of whom immediately submitted his resignation, that the board decided belatedly to file a first information report," he said in his address to Tata Sons.